The rapidly accumulating genome sequence data allow researchers to address fundamental biological questions that were not even asked just a few years ago. A major problem in genomics is the widening gap between the rapid progress in genome sequencing and the comparatively slow progress in the functional characterization of sequenced genomes. Here we discuss two key questions of genome biology: whether we need more genomes, and how deep is our understanding of biology based on genomic analysis. We argue that overly specific annotations of gene functions are often less useful than the more generic, but also more robust, functional assignments based on protein family classification. We also discuss problems in understanding the functions of the remaining ‘conserved hypothetical’ genes.